MNI US OPEN - ECB Stealing Fed's Thunder

NEWS:

ECB (MNI/BBG/RTRS): PEPP reinvestments to be discussed
Bloomberg are reporting that the ECB's ad hoc meeting today will discuss using PEPP reinvestments to support countries who had seen spreads widening as the first crisis response. Reports follow the convening of the ECB Governing Council in an unscheduled meeting, on which there are no details on whether the discussion will be kept internal or whether there will be any press release after.

ECB (BBG): The European Central Bank’s Governing Council is ready to step in if it considers moves in government bond markets to be unjustified, according to Belgium’s Pierre Wunsch. “Most of us -- probably all of us, actually -- are very open to doing something if it’s clear enough that there’s a problem of markets overreacting or unwarranted fragmentation,” Wunsch said in emailed comments Tuesday afternoon and confirmed Wednesday as the ECB prepared for an emergency meeting on recent euro-zone bond turbulence.

EU-UK (MNI): Sefcovic To Set Out Broader EU Response To UK NI Protocol Bill @ 1100CET
European Commission Exec VP Maros Sefcovic is set to deliver a statement at 1100CET (0500ET, 1000BST) outlining more broadly the EU's planned response to the UK gov'ts presentation of the Northern Ireland Protocol bill on Monday. The bill unilaterally amends parts of the protocol within the Brexit Withdrawal Agreement. The UK argues this is necessary as the protocol is notworking as intended and threatens the Good Friday/Belfast Agreement. The EU argues that the UK is violating international law with the bill, and that it is Westminster that is endangering the peace process.

GERMANY (MNI): German Inflation Seen Slowing to 3.3% in 2023 -Ifo
Germany's inflation is expected to average 6.8% in 2022 and the slow to 3.3% in 2023, the Munich-based Ifo Institute said Wednesday. The growth outlook for 2022 has been downgraded from the March forecast as the war in Ukraine rumbles on, now seen at 2.5% vs the 3.1% seen three months ago. In 2023, growth is expected to accelerate to 3.7%.

FED (MNI): We put out an update to our Fed preview yesterday, following the WSJ/CNBC stories that led the market to price 90+% probability of a 75bp hike. The Fed is likely to deliver just that on Wednesday. The Statement will incorporate stronger hawkish language in order to justify the surprise acceleration in the hike pace. June's Dot Plot will become much more hawkish vs March's and vs what was expected prior to a 75bp hike becoming consensus. But the outlined rate path will probably fall short of current market pricing. Full MNI Fed Preview Update here. https://marketnews.com/mni-fed-preview-june-2022-update-justifying-75

BOE (MNI): A 25bp hike is fully priced forthis week's MPC meeting, with markets pricing in around a 1/3 probability that the Bank of England vote for a larger 50bp hike. We think that there is likely to be enough support for most (or "the majority") of members to continue with the previous forward guidance for this month at least. Full MNI BOE Preview here: https://marketnews.com/markets/central-bank-reports/central-bank-preview/bank-of-england-preview/mni-boe-preview-june-2022-25bp-but-what-next

SNB (MNI): FX language could be first sign negative rates will be reversed
The SNB are expected to lay the groundwork for the first change to the policy rate in seven years at this week’s meeting. But the bank will likely hold rates for a further three months so as not to add to market uncertainty by prematurely widening the ECB/SNB policy rate differential and inducing FX market volatility. Full MNI SNB Preview here: https://marketnews.com/-2657511324

DATA

MNI BRIEF: China May Sales, Output Improve As Covid Eased
China's May industrial output and consumption recovered from the two-year lows in April as Covid-hit areas emerged from lockdowns, while investment, the main growth driver this year, remained uplifted amid a policy push, data by the National Bureau of Statistics on Wednesday showed.

Industrial production rose 0.7% y/y in May, reversing a 2.9% decline in April and outshining the forecast 1.0% decline. Retail sales fell 6.7% y/y in May, narrowing from April's 11.1% decline, slightly weaker than the forecast 6.5% decline.

MNI: FRANCE MAY HICP +0.8% M/M, +5.8% Y/Y

BONDS: Unscheduled ECB meeting dominates morning session

• It's the day of the Fed meeting but all the attention so far this morning has been on the unscheduled ad hoc ECB meeting which was due to begin at 10:00BST / 5:00ET. The ECB is expected to discuss recent market moves, potentially discuss in more detail the "anti-fragmentation tool", of which we know has been mentioned at ECB press conferences but we have never seen details of.
• After closing yesterday at 244bp, 10-year BTP-Bund spreads reached a low of 214.5bp (down over 29bp since yesterday) but have seen given back some of that move to be down 19bp on the day at writing at 223bp.
• We expect spreads to widen again if the ECB does nothing more than state it will reinvest maturing PEPP proceeds more in peripheral debt than the capital key suggests - this is something that they can already do and wouldn't be a new policy. For spreads to meaningfully tighten further from here we would need some kind of commitment to sell core bonds to buy peripheral bonds, or for all PEPP reinvestments to be used to buy peripheral debt.
• Bund yields are only down by 1bp or so on the day, with the German curve bull steepening by about 4.7bp.
• UST and gilts have rallied more than the German curve with a parallel moves in USTs and a more mild steepening in the gilt curve.
• Other than the ECB meeting, focus will be on US retail sales and Fed later. Our updated Fed preview is available here.
• The EU has also announced this morning that it is re-starting legal action against the UK over the Brexit bill and NI protocol.
• TY1 futures are up 0-14+ today at 114-27+ with 10y UST yields down -5.8bp at 3.418% and 2y yields down -5.9bp at 3.373%.
• Bund futures are down -0.62 today at 142.97 with 10y Bund yields down -0.9bp at 1.742% and Schatz yields down -5.7bp at 1.163%.
• BTP futures are up 1.62 today at 116.23 with 10y yields down -23.0bp at 3.941% and 2y yields down -24.1bp at 1.881%.
• Gilt futures are up 0.10 today at 112.01 with 10y yields down -5.8bp at 2.527% and 2y yields down -8.1bp at 2.015%.

FOREX: EUR Tilts Higher as ECB Convene to Address Market Volatility

• After a sanguine overnight session, the single currency ripped higher ahead of the NY crossover on reports of an unscheduled meeting of the ECB Governing Council, who have convened to discuss and address recent market volatility. The widening of peripheral European government bond yield spreads are said to the root of concern, prompting the ECB to stress that their PEPP reinvestment program will see proceeds invested into more peripheral debt than the capital key dictates. Markets await any formal statement from the bank, with the unscheduled meeting already underway.
• Reports of the meeting helped support the single currency, putting EUR/USD either side of 1.05 ahead of US hours, with a hawkish speech from ECB's Wunsch adding to the upside. The June 13th highs remain the next upside level, in range at 1.0523.
• The USD Index sits lower, led by the single currency, with attention turning to today's FOMC rate decision and press conference. The Fed are firmly seen raising rates by 75bps - the sharpest rate of increase for decades - as markets look to gauge the future rate path from the accompanying dot plot. The USD Index remains just below the cycle highs printed yesterday at 105.65. Scandi currencies are faring better, while the CAD extends the recent downtick.
• Outside of the FOMC decision, it's a busy US data session, with Empire Manufacturing, May retail sales and import/export price indices due to cross.

EQUITIES LEVELS UPDATE: Grinding higher ahead of central bank announcements

• Japan's NIKKEI down 303.7 pts or -1.14% at 26326.16 and the TOPIX down 22.52 pts or -1.2% at 1855.93.
• China's SHANGHAI closed up 16.5 pts or +0.5% at 3305.406 and the HANG SENG ended 240.22 pts higher or +1.14% at 21308.21.
• German Dax up 133.65 pts or +1% at 13437.76, FTSE 100 up 77.22 pts or +1.07% at 7264.97, CAC 40 up 61.03 pts or +1.03% at 6010.46 and Euro Stoxx 50 up 31.34 pts or +0.9% at 3506.6.
• Dow Jones mini up 114 pts or +0.38% at 30489, S&P 500 mini up 17.75 pts or +0.48% at 3754.5, NASDAQ mini up 63.25 pts or +0.56% at 11377.5.

COMMODITIES LEVELS UPDATE: Crude bucking the trend of moves higher

• WTI Crude down $1.04 or -0.87% at $117.95
• Natural Gas (NYM) up $0.11 or +1.49% at $7.291
• Natural Gas (ICE Dutch TTF) up $1.76 or +1.81% at $99.545
• Gold spot up $14.31 or +0.79% at $1823.64
• Copper up $2.3 or +0.55% at $419.8
• Silver up $0.34 or +1.64% at $21.4106
• Platinum up $17.36 or +1.88% at $942.92